Gas-to-shore project can jump-start new era of economic development for Guyana – finance professor
…says project makes sense from an economic perspective
By Jarryl Bryan
When it comes to the economics and the potential benefits that Guyana would reap from a gas-to-shore project, finance professor and recent contributor to the Local Content Panel, Floyd Haynes said that the project is quite feasible and can usher in a new era of economic development.
In an interview with this publication, Haynes spoke of the potential benefits of the gas-to-shore project being pursued by the current People’s Progressive Party (PPP) Government. He explained that with the reduced cost of producing power, the project can usher in economic development as manufacturing costs decline.
“First, there will be a reduction in the cost of energy, which is immediate. The cost of energy is one of the major cost inputs to any kind of manufacturing or production activity. What you’ll find is that the cost of energy is probably the most expensive component. Now if you can reduce that cost of energy, you’ve essentially reduced the cost of producing that product,” he explained.
“Which means the price of that product is also reduced. And you can then sell that product at a more competitive price. So that’s the first thing. There is a cost savings that will ultimately lead to a reduction in the price of manufacturing services. Secondly, there is a direct relationship between energy and economic development. Because if you can reduce your cost of energy, it means you can jump-start economic activity which in turn leads to economic development.”
Haynes, an adjunct professor in finance, further explained that economic development is dynamic and that there is a multiplier effect whereby increased production leads to increased development and more jobs, with the trickle-down benefits felt in households and communities. He also noted that there are other value-added products that could be derived from the natural gas process, such as propane.
There have been concerns about the financing of the project. However, Haynes pointed out that based on existing reports, the project would be financed through Exxon’s cost pool. He also urged persons to look at the issue in a comprehensive manner and to weigh the potential return on the investment.
“You have to look at both sides of the equation when you’re looking at an investment. And the way you do that is you look at the future benefits, you discount the future benefits from present value and you compare it to investment. And if the present value of future benefits exceeds the investment, then the investment is a good one. And that’s the kind of analysis I think has to be done,” Professor Haynes said.
Soon after the Government issued permit licences to Exxon for the Payara Development Project last year, Vice President Bharrat Jagdeo had announced that the Government would turn its attention to negotiating the gas-to-energy project.
He had pointed out that Guyana is generating at nearly 17 to 20 cents per kilowatt/hour. As such, he noted that the project could cut the cost of electricity in the country by more than half. To this end, he had announced that a team has been set up to start negotiations on the gas-to-energy project, with the Government eyeing 2023 to bring the project to fruition.
And indeed, a Gas-to-Shore Project Advisory Committee headed by former National Industrial and Commercial Investments Limited (NICIL) Head Winston Brassington was set up soon afterwards to look at various locations for the gas-to-shore project.
A number of factors including geotechnical, geophysical and environmental factors were examined before Vice President Jagdeo announced recently that the Government had settled on Wales to land the pipelines for the project.
Meanwhile, Prime Minister Mark Phillips, who has responsibility for the energy sector, has previously said that the Government is looking to produce 200 megawatts of power from the gas-to-shore project by 2024.
Exxon has said that around 30 to 35 million cubic feet of natural gas would be required for the gas-to-shore project. Recently-released data from Norwegian research company Rystad Energy had indicated that less than 20 per cent of the 1.8 billion Barrels of Oil Equivalent (BOE) discovered last year was gas.